The Pope just called investment products that helped cause the financial crisis a ‘ticking time bomb’

The Vatican released a 10,000 word bulletin on global economics and finance on Thursday.
The Pope warned against “unstable” products like derivatives and credit default swaps, calling them unethical.
Pope Francis, the first leader of the Vatican from a developing country, has long sought to heighten awareness of global poverty.

The Vatican released a scathing 10,000 word review of the global financial system on Thursday, specifically calling out derivatives like credit default swaps, products credited with helping cause the global financial crisis a decade ago.

Credit default swaps — or derivatives contracts designed to guarantee against bond defaults — made headlines in 2008 after they were blamed for exacerbating the financial crisis. Traders who felt invincible realized that the components of their alleged hedges were far riskier than previously thought, as they were propped up by rotten assets such as defaulting mortgages.

“The market of CDS, in the wake of the economic crisis of 2007, was imposing enough to represent almost the equivalent of the GDP of the entire world,” the Holy See said, first reported by Bloomberg. “The spread of such a kind of contract without proper limits has encouraged the growth of a finance of chance, and of gambling on the failure of others, which is unacceptable from the ethical point of view.”

Because these products are often “securitized” multiple times — or made into secondary investment products with less connection to the underlying asset — that “transforms them into a ticking time bomb ready sooner or later to explode,” the Church said.

Pope Francis has made egalitarian treatment of the world’s poor and social change a large focus of his leadership. In 2015, less than a year into his tenure as the highest ranking Catholic official, he met with a Peruvian priest named Gustavo Gutierrez, the founder of “liberation theology.” His …read more

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